We are entering the age of the “Internet of Things,” where sensors, computers and devices are connected in a self-managing ecosystem. At home, this could mean your alarm clock communicating with your coffee maker or your thermostat communicating with your window blinds. In business, this could mean your barcode scanners communicating with your suppliers or your assembly lines communicating with to your repairmen.

In other words, the Internet of Things automates an entire activity, such as building management, medical diagnostics, logistics or manufacturing.

For example, Apple has developed an Internet of Things ecosystem that enables various devices to communicate with each other with the express goal of one day “owning the living room.” Google is also aiming to enter the space by developing driverless cars and increasingly sophisticated remote home monitoring systems.

Some of the technological drivers behind The Internet of Things include: the rise of affordable, high-performance computing, the availability of inexpensive and accurate sensors, widespread access to high-speed wifi, the emergence of sophisticated algorithms and the ability to tie everything together through software interfaces.

The Internet of Things affords tremendous opportunities for increasing productivity, inventing new services and freeing up human capital to re-focus efforts on strategic rather than menial initiatives. Firms that are first movers in the space and that are able to develop the right business models will not only resolve big customer problems and cut costs but also recast the markets in which they operate.

In short: The Internet of Things is coming to every market that has been — or can be — digitized.

Case Study: Sahara Force India Formula One

Competing in the Formula One circuit is one of the most challenging and technologically advanced undertakings in the world. Increasingly, advantage goes to the team that can better leverage insight drawn from data generated in practice and during races to execute real-time enhancements to the car and provide critical information to the driver.

“Sahara Force India is second-to-none in pushing boundaries to achieve speed, innovation and capability,” says Gary Tyreman, chief executive of Univa. “Leveraging the Internet of Things enables SFI to reduce development engineering time and money, and take in-race performance to levels which once were considered impossible.”

Here’s how it works: The Sahara Force India analytics team monitors and models car performance in race conditions, generating more than one terabyte of data over the course of a typical race. Trackside engineers and the driver then use insight derived from this influx of information to adjust things such as brake sensitivity and suspension, thereby improving car performance and informing seasonal development plans.

This raises an important point. The Internet of Things requires more than an investment in connectivity-enabled hardware and software. It also requires developing the human knowhow to manage, draw insight from and optimize the system based on the data that’s being captured.

How you can benefit from the Internet of Things

For many firms, the Internet of Things poses a significant threat due to its disruptive nature. For others, it stands as a significant opportunity to outflank the competition. But regardless of how each firm reacts to the rise of the Internet of Things, the fact remains: every company will be affected. This is because the need to serve customers better, faster, with greater ease and at a lower cost will invariably spur Internet of Things investments and strategies.

With that in mind, here are five things you should consider before implementing an Internet of Things strategy:

List the current and emerging needs of customers, suppliers and distributors that your firm is not currently equipped to provide.

Identify how an Internet of Things offering might address those issues and generate value within your enterprise and market. For example, you may want to improve your understanding of customer behaviour in order to improve service.

Think more broadly about an Internet of Things offering than bottom line impact. How could it position your firm for future competitiveness?

Consider your potential Internet of Things offering in terms of its key components: software, hardware and people. Can you leverage existing resources to cut costs?

Analyze how your organization would need to be restructured in order to deliver a successful Internet of Things offering.

Internet of Things offering than bottom line impact. How could it position your firm for future competitiveness?

Consider your potential Internet of Things offering in terms of its key components: software, hardware and people. Can you leverage existing resources to cut costs?
Analyze how your organization would need to be restructured in order to deliver a successful Internet of Things offering.

In most organizations today, IT is firmly planted near the top of the strategic agenda. Businesses continue to require new software and hardware to interact with customers, manage supply chains, and process transactions. However, the bygone days of CIOs getting a blank check for the latest IT application is long gone. Infrastructure and operating (I&O) cost reduction is now an important priority. Even after multiple rounds of cost cutting over the past few years, many CEOs and CFOs continue to look hungrily at IT budgets that could now approach 15-20% of total spending in many companies. Fortunately, opportunities abound. A proactive and systematic cost reduction initiative could reduce IT expenditures in the short term by 10%, and 25% over the following 3 years.

According to Gartner Research, I&O costs make up 60% of the typical enterprise IT budget. These costs encompass all the activities that deliver IT to the organization, including: facilities, hardware, software, services, labour and network costs. Up to 80% of these costs fall into 3 omnibus areas: data center operations, network fees and supporting the lines of business. Shaving these expenditures is a major opportunity area in most firms. In a 2011 survey of IT executives, Gartner found that only a minority of companies were more than halfway down their IT cost savings path.

There is no magic bullet to reducing IT expenditures while ensuring ‘always on’ computing remains responsive to dynamics business needs. Our work with savvy CIOs has identified many cost reduction best practices, some of which include:

Consolidate IT

Significant savings of 15-20% can be garnered by consolidating IT through server rationalization, moving to standardized software platforms, negotiating better IT provider terms and by optimizing the data center. For example, many IT managers out of habit or risk aversion put all their computing needs in the most robust and secure data centers. This not need be the case. Lower tier requirements (e.g., development, testing environments) and applications (e.g., training, HR) can be placed in lower-tier facilities with minimal business impact. Furthermore, lower-tier facilities can still be used for hosting production environments and critical applications if they use virtualized failover— where redundant capacity kicks in automatically— and the loss of session data is acceptable (as it is for internal e-mail platforms for example).

First virtualize, then buy

Most IT infrastructures operate at less than 15% capacity on average due to uneven demand, decentralized purchasing and “siloed” resourcing. Driving up utilization through grid or virtualized computing is a cheaper and easier option than buying expensive hardware & software and building new data center to handle the new assets. “Dedicated infrastructure will usually be an order of magnitude lower in utilization than an intelligently shared infrastructure,” said Gary Tyreman CEO Univa Corporation. “Using grid computing to share infrastructure across multiple applications is more efficient, saves money and simplifies capacity planning and governance.” We have seen many companies use server virtualization and grid computing to boost IT utilization rates in excess of 75% while reducing energy, facilities and operating costs.

Target power and cooling efficiencies

Power and cooling are significant cost centres and barriers to higher IT utilization. Many companies can cut 5-20% in operating costs by deploying energy-efficient power and HVAC equipment and making simple infrastructure upgrades. Furthermore, augmenting cooling can also boost scalability. In many cases, older data centers have dated air-conditioning systems that limit the amount of server, storage, and network equipment that can be placed in these sites. Capacity can often be inexpensively and quickly improved by upgrading infrastructure cooling efficiency, using free cooling and installing energy management systems.

Troubleshoot better

Adding hardware, software and facilities isn’t always the most direct or effective way of making applications more available. The vast majority of IT downtime is the result of architecture, application or system design flaws not hardware or software problems. Instead of looking first to upgrade the infrastructure, smart firms are adopting integrated problem management capabilities that gets to the root cause of problems, significantly reducing infrastructure costs and maximizing application up-time. Additionally, major cost savings can be gained by pushing IT support down from expensive tiers to lower, less expensive tiers that are able to satisfactorily resolve the user’s issues. Right-sizing IT support should include the deployment of low cost, self-service portals to handle issues like password resets and ‘how-to’ queries.

These days, the cost of IT is too big to be ignored. CIOs can quickly increase IT’s returns on assets and operational performance without increasing business risk by: thoroughly understanding their cost base (and how it compares to their peers); diligently pursuing ‘low hanging’ cost reduction opportunities and; deploying new architectural and virtualization schemes that deliver more IT for less money.

Many organizations we work with are diving head first into the latest IT game changer, cloud computing. While a comprehensive technical and financial analysis is usually undertaken, few companies thoroughly consider the organizational implications of this strategic move. They do this at their own peril. We have seen cloud computing implementations go astray when the wrong structures, processes and practices compromised the right technical solution. Managers would be wise to consider whether their organizations are cloud-supportive before re-architecting their infrastructures.

In a traditional IT model, technicians, hardware and software are tied to specific geographies, departments and business units. In most cases, this model fails to maximize operational flexibility and IT asset utilization. A CC architecture, on the other hand, centralizes and virtualizes IT resources, making them available to all users when needed as needed. The result is greater operational agility, lower costs and higher IT scalability. This fundamental change in the way IT is treated has major implications on a firm’s organizational system and culture. For example, who controls virtualized IT resources and priorities in an ‘on demand’ environment? How do companies execute projects when assets and capabilities are decoupled from a physical location? And, what work practices are better suited for a more transactional and fluid CC environment?

If they are to maximize the benefits of CC, business leaders must rethink how their enterprises are organized and run. Based on our consulting experience, we know the following areas are a good place to start:

Focus on tasks, not structure

CC’s rapid IT provisioning enables companies to be more flexible and agile, for example, in deploying new applications faster or responding quicker to market needs. However, many firms have rigid structures and processes that were developed in the era of static IT resourcing. This traditional model is too limiting to effectively exploit the benefits of CC. To be cloud-ready, managers should experiment with other organizational approaches that are more synergistic with the way CC works. For example, an adaptive, SWOT-team structure and working style can more quickly respond to new priorities and deploy the resources and expertise needed to deliver on the business need. The film industry is a good example of this kind of adaptive system; a wide variety of people and capabilities come together quickly at different points in the production process to execute on a creative concept and plan. At completion, the people and resources go back to a central business unit or are dispersed onto other projects.

Form follows function

In a traditional IT model, resources are usually structurally (if not mentally) “siloed” and linked to specific functions via non-standard workflows (i.e. processes) Putting IT resources in the cloud decouples them from the constraints of a physical location, allowing them to be managed more centrally and deployed virtually. As such, CC can help bring about the formation of a true Shared Service Organization, a structure that delivers key business benefits. For example, a capable SSO is essential to enabling the adaptive business system mentioned above – assuming good workflows are in place. However, Gary Tyreman, CEO of Univa, a leading supplier of Cloud Computing solutions, cautions that “to realize value, an organization must integrate its cloud-powered IT services into existing workflows. Where those workflows are broken or non-existent, they need to be fixed and defined.” Secondly, a SSO brings significant value including lower administrative costs, increased management control & standardization, and the possibility for greater organizational learning. Finally, having a SSO allows IT managers to focus more on pushing the business forward as opposed to hoarding resources and building fiefdoms.

Collaboration breaks down barriers

The common business environment – hierarchical roles, non-standard processes, and department-based metrics – encourages employee practices that are ill-suited to the dynamic nature of CC. To best leverage the cloud’s capabilities, employees need to change how they work. To begin with, the leadership must foster increased collaboration and alignment within the firm as well as with external vendors. Examples of the changes required, include: better aligning IT teams and vendors to overall business objectives (versus more parochial departmental goals); encouraging end-to-end project collaboration (versus point-in-process support); and placing greater importance on team and individual skills enhancement (to drive best practice adoption). To make these changes stick, leaders will first need to get two things right in their management system. One, project accountability should live with the business sponsor. Two, responsibility and authority must reside with the SSO leadership.

According to Tyreman, “For most companies, moving to the cloud is more an organizational challenge than a technical problem.” Fully tapping CC’s potential will require enterprises to recast their structures, processes and management systems where appropriate. Though this may not be easy, it need not be scary. Companies that are open-minded, practical, and flexible will create the right organizational environment to fully leverage the Cloud.

Email Subscription

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Join 329 other followers

About Mitchell Osak

Mitchell is a management consultant with a passion for strategy development and execution. He has 20+ years of consulting and senior operational experience in a variety of Fortune 1000 firms. Mitchell is considered an "un-consultant" for his collaborative approach, expert problem solving and holistic strategic insights. His email is: mosak@quantaconsulting.com